FX Trading: Carry Trades Could Benefit from JPY Weakness
The Bank of Japan (BoJ) in its latest policy review decided to continue with its ultra-dovish policy stance and maintained policy rates at negative 0.1 percent with 7 votes in favor and 2 votes against the stance. With the same vote, the bank has continued its annual ETF purchase program at 6 trillion. The BoJ continue to enter into unexplored territory in keeping ultra-low rates and an overextended inflation target. Overall, this should contribute to JPY weakness with forex options traders looking to establish CALL positions in the AUD/JPY or USD/JPY.
BoJ Statement
In the same statement, the Bank of Japan informed the market that it will continue with its bond-buying program in order to keep the bond yields at record low levels. The central bank has also reiterated that its asset purchase program will fluctuate at an annual 80 trillion. The bank has announced 2 new instruments to curb the volatility of the yield curve: fixed rate purchase operations and fixed-rate fund supplying operations for a period of up to 10 years. The bank has also indicated that it will allocate funds to Topix ETF, which was previously designed for Nikkei 225.
Easing Programs
The QQE (Quantitative & Qualitative Monetary Easing) program which aims to achieve price stability to 2 percent, was continued in its program to increase the fiscal base until inflation reaches its targeted figure. Despite the relentless efforts by the Bank of Japan, inflation has remained in the negative territory for five consecutive months, and the bank considers a reduction in oil prices and the introduction of consumer tax programs to be the likely factors in creating the decline.
Yield Curve Management
The bank believed that the yield curve management will push real interest rates downward and help inflationary pressures to rise. The Bank of Japan has also suggested that having synchronized efforts from both the government and the bank through fiscal stimulus, monetary easing, and structural reforms are necessary to come out of the deflationary period and to be on a better growth path.
Against the backdrop of sustained deflationary environments and falling exports, falling business confidence and fluctuating consumer confidence, the BoJ has indicated that it is ready to do further easing in monetary policy by further reducing rates, increasing asset purchase,s and expanding the fiscal base. The bank will continue is expansionary monetary policy till things stabilize and, until this is seen, we will likely see better activity in carry trading forex pairs.
The Bank of Japan (BoJ) in its latest policy review decided to continue with its ultra-dovish policy stance and maintained policy rates at negative 0.1 percent with 7 votes in favor and 2 votes against the stance. With the same vote, the bank has continued its annual ETF purchase program at 6 trillion. The BoJ continue to enter into unexplored territory in keeping ultra-low rates and an overextended inflation target. Overall, this should contribute to JPY weakness with forex options traders looking to establish CALL positions in the AUD/JPY or USD/JPY.
BoJ Statement
In the same statement, the Bank of Japan informed the market that it will continue with its bond-buying program in order to keep the bond yields at record low levels. The central bank has also reiterated that its asset purchase program will fluctuate at an annual 80 trillion. The bank has announced 2 new instruments to curb the volatility of the yield curve: fixed rate purchase operations and fixed-rate fund supplying operations for a period of up to 10 years. The bank has also indicated that it will allocate funds to Topix ETF, which was previously designed for Nikkei 225.
Easing Programs
The QQE (Quantitative & Qualitative Monetary Easing) program which aims to achieve price stability to 2 percent, was continued in its program to increase the fiscal base until inflation reaches its targeted figure. Despite the relentless efforts by the Bank of Japan, inflation has remained in the negative territory for five consecutive months, and the bank considers a reduction in oil prices and the introduction of consumer tax programs to be the likely factors in creating the decline.
Yield Curve Management
The bank believed that the yield curve management will push real interest rates downward and help inflationary pressures to rise. The Bank of Japan has also suggested that having synchronized efforts from both the government and the bank through fiscal stimulus, monetary easing, and structural reforms are necessary to come out of the deflationary period and to be on a better growth path.
Against the backdrop of sustained deflationary environments and falling exports, falling business confidence and fluctuating consumer confidence, the BoJ has indicated that it is ready to do further easing in monetary policy by further reducing rates, increasing asset purchase,s and expanding the fiscal base. The bank will continue is expansionary monetary policy till things stabilize and, until this is seen, we will likely see better activity in carry trading forex pairs.